IEEJ：January ©IEEJ 2024
Special Bulletin
A Japanese Perspective on the International Energy Landscape (669)

December 26, 2023

Reviewing Japanese and International Energy Situations in 2023
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, Japan
There are only six days left in 2023. While the Ukraine war, which started in 2022, remains
deadlocked, a surprise attack on Israel by Hamas last October has worsened the Gaza crisis. This year,
which marks the 50th anniversary of the first oil crisis, has become a year in which grave developments
arose for the Middle East situation and global geopolitics. In the following, I would like to summarize
and review the highlights of the energy situations in Japan and the world in 2023 from my personalperspective.
In 2023, international energy prices fell significantly from the previous year. So far this year,
crude oil prices have averaged $82 per barrel for Brent and $78/bbl for West Texas Intermediate,
declining by nearly $20/bbl from the respective 2022 averages of $99/bbl and $94/bbl. Dutch Title
Transfer Facility gas prices have averaged $13 per million British thermal units so far this year,
dropping from the 2022 average at $41/MMBtu, or faster than crude oil prices. Steam and coking coalprices in the international coal market have also declined markedly so far this year.
These energy price decreases came as the tightening of the supply-demand balance andsupply insecurity were basically phased out this year after leading to unusually high prices in 2022. A
global economic slowdown this year was a key contributor to the declines in international energy
prices. Despite the decreases, however, crude oil prices at $80/bbl are by no means low. Althoughenergy prices fell from 2022, the world remained plagued with high energy prices in 2023. Trends ofcrude oil and European natural gas prices indicate that gas prices were overwhelmingly higher thancrude oil prices in 2022 in terms of calorific equivalent before becoming slightly lower in 2023. The
relative price changes might have reflected price support actions by the OPEC-plus group of oilproducing countries in the international oil market and the lack of such price support actions in the gasmarket.
Energy prices, though declining from 2022, continued to plague consumers in the world thisyear. Although gasoline subsidies were planned to be eliminated at the end of September in Japan,
crude oil price hikes then led the subsidies to be extended beyond the month. Europe continued to facea difficult economic situation due to high energy prices and inflation. As a result, cautious political
attitudes emerged against policies that could lead to further energy price hikes. For instance, the United
Kingdom announced the postponement of planned bans on the sale of new internal combustion engine
vehicles and on the construction of petroleum-based boilers. This year, it thus became clear that theimpact of rising energy prices and costs on society and the economy is not insignificant but is an
important consideration for the implementation of future policies to promote energy transition.
While nearly 22 months have passed since Russia’s invasion of Ukraine in February 2022,
the Ukraine war has increasingly been expected to last long. Last June, Prigozhin’s rebellion occurredin Russia, with Ukraine launching a counteroffensive. However, Ukraine has failed to make any
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decisive achievements, leaving the war in a stalemate. Under such circumstances, it has been pointed
out that there are signs of "fatigue in supporting Ukraine" in Western countries. Hamas’s large-scale
surprise attack on Israel on October 7 and Israel’s subsequent counterattack escalated the Gaza crisis.
While Israel has suffered heavy human casualties, the humanitarian crisis in Gaza has only worsened,with the death toll surpassing 20,000. The destabilization of the Middle East has diverted the world's
attention from the Ukraine crisis, exerting various effects on both Ukraine and Russia. Westerncountries have been forced into a "two-front operation" in which they have no choice but to respondto both the Ukraine and Gaza crises. As the Gaza crisis has deepened, discontent with the United States
has increased at the grassroots level in the Arab world, creating a new complex and difficult
geopolitical situation in 2023.
As the global economy has slowed down gradually due to rapid, substantial interest rate
hikes in Europe and the United States since the beginning of 2022, global economic growth is expected
to decline to 3.0% in 2023 from 3.5% in the previous year, according to the World Economic Outlookof the International Monetary Fund. In particular, a Chinese economic slump has attracted the world'sattention, contributing to the easing of the supply-demand balance and price falls in the internationalenergy market. In response to this situation, the OPEC-plus group enhanced production cuts, with
Saudi Arabia and some other group members adding to voluntary cuts, continuing efforts to support
crude oil prices.
Since 2020, when the trend toward carbon neutrality began to accelerate, a grim view about
the future of fossil fuels has spread rapidly around the world. Although the view is still grim, theUkraine crisis and soaring energy prices have led the world this year to reaffirm the importance ofsecuring a stable supply of fossil fuels and recognize the possibility that the energy transition may takea considerable amount of time. Under such circumstances, the presence of the OPEC-plus group andSaudi Arabia increased significantly. At the same time, international oil majors’ acquisition of large
natural gas assets and their enhancement of LNG business have attracted global attention.
This year also featured a remarkably widening gap between the ideal and reality of theenergy transition. While greenhouse gas emissions were required to be reduced substantially to prevent
climate change, politics, society, and the economy have become sensitive to the impact of rising costs
for enhancing GHG emission cuts, indicating that how to control potential cost hikes will become themost important challenge regarding energy transition. Furthermore, the year saw the growing
importance of the Global South amidst the deepening division of the world. The United States andChina, or the Western bloc and the China-Russia group, fought a tug of war to step up cooperation
with the Global South. India, Southeast Asia, the Middle East, Brazil and other Latin Americancountries, and Africa increased their presence and influence, complicating the global geopoliticalsituation.
Under such circumstances, Japan hosted the Group of Seven Hiroshima Summit in May
2023. At the summit, energy and climate change issues occupied a crucial position among the key
global issues such as the response to the Ukraine crisis, enhancing climate action, strengthening energy
security, the division of the world, and the Global South. Under Japan’s leadership, the G7 agreed toadmit “various pathways” to achieving common goals such as enhancing energy security andpromoting decarbonization. The recognition of “various pathways” rather than “a single pathway”
under a top-down approach was the most important achievement of the summit, which allowed the G7to strengthen cooperation with the Global South and limit the rising costs of energy transition for allcountries. This concept was basically carried over to the Group of 20 summit in India. To promoteenergy transition based on its own national conditions, Japan implemented the GX (Green2IEEJ：January ©IEEJ 2024
Transformation) Promotion Act and the GX Decarbonized Power Source Act in May 2023.
In 2023, a series of extreme weather events around the world gave rise to terms such as"global boiling," with calls intensified for further strengthening GHG emission reduction measures.
The 28th Conference of the Parties to the United Nations Framework Convention on Climate Change,
known as COP28, in the United Arab Emirates called for reducing global GHG emissions in 2030 by
43% from 2019 and those in 2035 by 60% to achieve the goal of limiting global warming to1.5℃. It
set out the goals of tripling renewable energy power generation capacity and doubling energy
efficiency by 2030. The COP28 also agreed on “a just, orderly, and equitable transition away fromfossil fuels.” Nevertheless, it is important that the concept of "various pathways" remained in theCOP28 agreement, emphasizing inclusive efforts for the respective countries in the world.

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